Markets tumble, no recovery trends in sight

Asian stock markets stumbled for the fifth consecutive trading session Tuesday amid concerns over Japan's credit rating and China's attempts to slow growth.

Across the globe, Britain said its gross domestic product squeaked into the red in the fourth quarter with less-than-expected 0.1 percent growth, as the economy pulled technically out of recession after six consecutive quarterly declines. Stocks in Europe have also struggled of late. In London, the FTSE 100 index of British stock is down about 190 points since the start of the new year.

Credit rating firm Standard & Poor's, meanwhile, warned mounting debt in Japan had cast a shadow over its AA rating, which shifted from stable to a negative, The New York Times reported Tuesday.

In a statement, S&P said, "the outlook change reflects our view that the Japanese government's diminishing economic policy flexibility may lead to a downgrade unless measures can be taken to stem fiscal and deflationary pressures."

"The policies of the new Democratic Party of Japan government point to a slower pace of fiscal consolidation than we had previously expected," S&P said.

Japan has a prolonged struggle ahead as it tries to reduce debt which is predicted to hit $9.4 trillion by March 2011, which would put it at 181 percent of the country's gross domestic product.

Economist Simon Wong at Standard Chartered said a high percentage of Japan's debt was held in the country, so that "no one is expecting Japan to default on its debt." A slide in its credit rating, however, would push up the cost of government borrowing, an MU Investments Co. strategist told the Times.

In Tuesday's trading, the Nikkei 225 in Tokyo fell 1.78 percent to 10,325.28, about 329 points below its mark on Jan. 4. The Shanghai composite index in China lost 2.42 percent, while the Hang Seng index in Hong Kong dropped 2.38 percent. The Sensex in India lost 0.47 percent, while the S&P/ASX 200 in Australia dropped 0.69 percent.

In midday trading in Europe, the FTSE 100 slid 0.56 percent, while the DAX 30 in Germany dropped 0.45 percent. The CAC 40 in France lost 0.67 percent, while the pan-European DJ Stoxx 50 shed 0.53 percent.

U.S. stocks are also down from the first of the year. The Dow Jones industrial average closed at 10,583.96 on Jan. 4 and at 10,196.86 Monday, dropping 387 points. The Standard & Poor's 500 is down 136 points from the first of the year, while the Nasdaq composite index has lost 98 points in January.

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In the final week of the month, with government reports sparse, analysts are pointing to disappointing U.S. sales of existing homes, which dropped 16.7 percent in December from November, for dragging down stocks Monday. Taking a longer view, some analysts say a correction of 10 percent is in the cards to balance out the remarkable run-up since March 9, 2009, when the DJIA rested at 6,547.20.

Others are pointing at chaos in Washington as fueling uncertainty. In one sign of stability, however, The Washington Post reported Tuesday that three more senators confirmed they would vote to approve Federal Reserve Chairman Ben Bernanke's second term as head of the U.S. central bank. Sen. John McCain, R-Ariz., said he would vote no. But, President Barack Obama said Monday, "he (Bernanke) has my strongest support. I think he's done a good job."


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